‘To ensure accountability, contract financing should be based on ‘performance based payments’

In Bangladesh, while the quantity of public infrastructure has increased over time, the quality did not. Rather, in many cases, quality deterioration has become a commonality.

To ensure accountability, contract financing should be based on "performance based payments." In this payment method, the financing is based upon specific performance criteria being accomplished. This type of smart projects are included in PPP in many developed countries.

The main benefit is that payments depend on the performance of the infrastructure.  Moreover, payments are not paid all at the same time, rather provided over the years. If the quality and standard of a certain project come out to be poor, the payments will be reduced. If only the agreed level of quality can be ensured, then the agreed level of payments will be paid.

This system gives the contractor or the construction firm an incentive to build infrastructure in the best way possible. Take for example of the M25 Orbital Motorway in London. The 188-kilometre motorway is one of the most important roads in the United Kingdom and one of the busiest.

Over the years, the road has been upgraded and widened many times. Around 10-12 years ago, the London authority planned the PPP in a way that payment is tied to the performance and maintenance of the project to a certain period. It has stipulated that if the asset performs inferiorly, it will affect the payment. That works as an incentive to make sure that the contractor is accountable.

Just like the M25, Bangladesh should introduce performance based payment in public infrastructure projects. We have dual problems with infrastructures. In the first case, the projects are built inferior [in quality]. And the contractor gets the whole payment at a time. On top of that, they also get maintenance deals. They keep getting money over the years.

In the context of Bangladesh, this is highly relevant. It would benefit us in two ways: firstly, quality of the projects will be ensured and secondly, maintenance cost will be saved. Upto the payment schedule period, the contractor would be responsible for the upkeep of the projects. If the construction firm cannot guarantee minimum agreed level performance, they will not get the full payment.

In Bangladesh, first of all, we see problems in the project development or formulation stage. Quite often, feasibility tests are conducted quickly and superficially. And, what we call a "master planning" is not taken into account.

For instance, rather than doing a feasibility test of a flyover, a master plan for the entire Dhaka city transportation system should be undertaken. So the relevance of any singular project would derive from that master plan. A project should not be taken up and pursued in isolation.

After the formulation of a  masterplan, only then you can go ahead with individual plans. We lack the masterplan; and as a result, most projects are pursued in isolation. Moreover, technical feasibility is conducted hurriedly, and, usually, nothing detailed is followed. This is one of the first grave weaknesses.

Secondly, although the impact of climate change is harshly felt worldwide, the impact on Bangladesh is more severe. Infrastructures have to be sustainable, meaning they should be climate resilient. 

Disclaimer: Dr M Masrur Reaz spoke to The Business Standard's Sabyasachi Karmaker over phone. This article is an excerpt of the conversation.